Here's where the CAPE looks like right now (from http://www.multpl.com/shiller-pe/):

So. The two times the CAPE has gone over 30, it's resulted in a drastic drawdown. The first time, back in 1929, the drawdown was fairly immediate (down to 22.30 on 1/1/1930). In 1998, it went up two more years and didn't go below 30 until 2002:
Jan 1, 1998 32.86
Jan 1, 1999 40.57
Jan 1, 2000 43.77
Jan 1, 2001 36.98
Jan 1, 2002 30.28
Jan 1, 2003 22.90
I suspect the likelihood of us repeating the heady, ridiculous, etoys.com-fueled climb of the internet boom is highly unlikely. And even if we do, that's fine. I don't care, because I'm 20 years older and don't require that kind of growth anymore because I've held steady through the mortgage crisis.
I know we are not market timers here, but let me float something out and see what you think.
How about switching to the Larry Portfolio right about now? Which of course we know to be:
15% Small Cap Value
15% Emerging Market
70% Intermediate Term Bonds
Seems like if there was ever a time to hedge your bets, it's now with the CAPE threatening to break 30. Of course nobody knows if CAPE hitting 30 means doom and gloom, but I think we are all pretty much in agreement right now that the market is somewhat overvalued.
Looks like the Larry Portfolio rode through the internet boom and bust AOK, though it did get roughed up pretty good during the mortgage crisis (from http://mebfaber.com/2015/07/24/appendix ... portfolio/):

Actually, I'm kind of surprised how badly this portfolio did during the mortgage crisis. With 70% in bonds, why the severe drawdown?
Anyway, this is my thought. And if you are asking when to go back to a traditional 60/40 stocks/bonds allocation, it would be when the CAPE goes below 25. If it doesn't go below 25, then we continue to be in the Larry Portfolio until it does. If it never does, then on with Larry. If Larry can provide 5-6% nominal returns, that's above the traditional 4% withdrawal rate and I'm fine with that.
The question is, do I wait until the CAPE hits 35? Let it ride? More than ever, investing feels like the casino, which is never a good thing...
- Sung